UNIDENTIFIED MALE: He's way off base, wading into a local issue
without knowing all of the facts.

STEPHANOPOULOS: Defending a friend, President Obama sparks a
national debate on prejudice and policing.

That and all of the week's politics on a special expanded
"Roundtable" with George Will, Donna Brazile, Paul Krugman, Arianna
Huffington, and David Brooks.

And, as always, the "Sunday Funnies."

CONAN O'BRIEN, HOST, "THE TONIGHT SHOW": Obama says the
conversation went well. But there was an awkward moment when the cops
arrested Obama.

(LAUGHTER)

ANNOUNCER: From the heart of the nation's capital, THIS WEEK with
ABC News chief Washington correspondent George Stephanopoulos, live from
the Newseum on Pennsylvania Avenue.

(END VIDEOTAPE)

STEPHANOPOULOS: Hello, again.

After a week of dueling press conferences and closed door
negotiations, it's clear now that Congress will not meet the president's
August make-or-break deadline for health care. The Senate put off votes
until September.

And while House Speaker Nancy Pelosi holds out some hope for a vote
next week, House Democrats have not yet agreed on an approach. That
guarantees several more months of struggle. So both sides are buying
new ads to shape the battlefield.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: When your representative comes home, ask them a
simple question: Before you voted on health care, did you even read the
bill? That's it, Congressman. Did you read the 1,017-page before you
voted?

Now the Republicans say Congress should slow down? That's because
when something goes slow enough, it's easy to kill it dead in its
tracks. Tell Congress you want health insurance reform now.

(END VIDEO CLIP)

STEPHANOPOULOS: And with that, let me bring in two senators at the
center of the debate, Senator Kent Conrad, the chairman of the Senate
Budget Committee; also Senator Jim DeMint, the chairman of the
conservative Senate Steering Committee and the author of a new book
called "Saving Freedom: We Can Stop America's Slide into Socialism."

You've got that vivid rhetoric there. And you've also gotten into a
bit of a war of words with the president in the last couple of weeks
when he said the health care issue could be Obama's Waterloo and that
his plans will destroy America's health care system.

But his allies argue that the plan will provide real benefits to
your state. Let me show you what they're saying, the House Energy and
Commerce Committee, that the president's plan could provide tax credits
for up to 92,200 small businesses in your state.

It will provide $648 million for doctors and hospitals in your
state, and get access for about 669,000 people who don't have health
insurance now in South Carolina. They say you're standing in the way of
what your state needs.

DEMINT: Well, they gave a similar numbers with the stimulus and
promised our unemployment wouldn't go above 8 percent. And now in South
Carolina, it's over 12. So the numbers are hard to trust, George.

This is not personal against the president. I like the president,
but he is out of control and he has been leading a stampede of more
spending and debt and taxes and government takeovers.

He has taken a bad economy and made it worse. He used a lot of
false promises and bogus numbers and panic to push through the
stimulus. And the promises have not panned out. And now he's trying to
use the same strategy on health care.

And what I'm trying to do and I think even Kent has had
reservations, let's slow down and get this right. My goal is to protect
the right of every American to make their own health care decisions.

And if we can do that, we can come up with a bill.

STEPHANOPOULOS: Slow it down and get it right. Is there any
meeting of the minds here?

CONRAD: Look, the critical thing is that we do get this right.
This is going to affect every American. Very few legislative
initiatives affect every single American. And it's one-sixth of the
national economy. So it's critically important we get it right.

But that shouldn't be used as a pretext to kill it. I mean, Jim, I
think, has been very clear. He wants to kill it. And I think that
would be a tragedy, because we've got a crisis here for the country.

Not only are we spending one in ever six dollars in the economy,
we're headed for a circumstance in which we'll spend one in every three
dollars in health care. That would be a disaster for families, for
businesses, and the government itself.

(CROSSTALK)

STEPHANOPOULOS: Both you and President Obama have really said that
the number one priority has to be to get costs under control. And the
president endorsed a proposal this week for an independent Medicare
commission that would really look hard at and crack down on payments to
doctors and hospitals.

But the head of the Congressional Budget Office put out a letter
yesterday where he said the savings -- the 10-year savings for that
proposal would be only $2 billion over 10 years. And he went on to say
the probability is high that no savings would be realized.

So do you have to go back to the drawing board?

CONRAD: No, because in the plan that we're working on, you know,
there are six of us on the Finance Committee, three Democrats and three
Republicans who have been given the responsibility to come up with a
proposal for our colleagues.

And in the effort that we're making, we've recognized that there
would be savings in this area, but that they would be relatively
modest. But the two big drivers are delivery system reform -- so we've
got...

(CROSSTALK)

CONRAD: Well, we look around the country. What is working? The
Mayo Clinic model, the Cleveland Clinic, Intermountain out in Utah.
They are teams of doctors that are patient-centered, that share
diagnostics, that share administrative staff. They save money. They
get the best health care outcomes. That's what we've got to replicate
all across the country.

The second big driver is the income tax subsidy to have health care,
$2.4 trillion over the next 10 years, virtually every economist that has
come before us has said, you've got to reduce that tax subsidy to health
care to reduce over-utilization.

STEPHANOPOULOS: Now the president has taken that off of the table.
But administration officials quoted in the Politico today saying that he
is now open to taxing the "Cadillac plan," he calls them.

One of the examples they give is the Goldman Sachs partners have a
$40,000 plan. You're saying tax those?

CONRAD: Yes. I think we've got to. Again, virtually every
economist that has come before us has said, you've got to reduce that
tax subsidy as part of an overall strategy to really contain costs.

STEPHANOPOULOS: What's wrong with that?

DEMINT: Well, I can tell a lot of these folks have not been in
business. So if you tax the insurance companies, it's going to affect
the cost of every policy. This is not about the numbers. Republicans,
including me, have introduced lots of health care reform proposals.

I introduced a tax equity which would allow people to deduct the
cost of their health insurance. The president and Senator Conrad voted
against it. I had a proposal that would allow people to buy health
insurance in any state, not just a single state monopoly. The president
and the Democrats voted it down.

I had a proposal that would allow individuals to use their health
savings account to pay for a premium. They voted it down. They even
voted against allowing small businesses to come together and buy their
health insurance.

So, George, what we've seen is that Republicans do want reform that
will make health insurance more affordable and available. But the only
proposals we're getting from Democrats is more government control of
health care.

STEPHANOPOULOS: So what's wrong with the Senator's proposal?

CONRAD: Well, the senator's proposal, the DeMint proposal in itself
would be a proposal. It has no insurance market reform. In fact, it's
kind of a protection for the insurance, private insurance companies, the
DeMint plan. In addition to that, it would force millions of people out
of employer-based coverage, onto some kind of government health. That
could conceivably cost $2 trillion for the government. In addition,
he's going to give you a voucher, $5,000 in...

STEPHANOPOULOS: That's a tax credit.

CONRAD: Yes. He's going to give a voucher worth $5,000 when health
care costs $20,000. That's in 2016. It doesn't sound like much of a
deal to me.

DEMINT: I'm afraid he didn't describe it right. The Healthcare
Freedom Plan, George, that I introduced, would not take anyone off of
their current plan. It wouldn't bother people on Medicare. You keep
your coverage you have at work. What we do is give fair treatment to
those who don't get their health care at work, and that would be a
$5,000 a year health care voucher for every family.

STEPHANOPOULOS: But how about the point that most plans cost far
more than $5,000?

DEMINT: Well, they wouldn't, if we would allow interstate
competition. They think we have to have a government plan to have
competition. But the president and Senator Conrad have voted to
maintain a state by state monopoly by insurance companies instead of
allowing a national market for insurance plans. There are plenty of
products out there that could get people insured for $5,000 and if we
allowed employers to put money in health savings accounts and let the
individual use that to pay for a premium, people could buy more
expensive policies. But we don't impact anyone who has insurance now.

STEPHANOPOULOS: Senator Conrad, let me bring it back to these
bipartisan negotiations you talked about, because that really is the big
game in town right now to the Senate Finance Committee. You've got
three Democrats, three Republicans, but a Republican senator, Orrin
Hatch, dropped out of the negotiations this week. And you've got a
dilemma. Senator Chuck Grassley, the Republican ranking member in the
committee says he's going to need some guarantees that the deal you
strike here is going to survive all the way to the president's desk.
You've got your own Democrat warning you not to give away the story.
Chris Dodd in the "New York Times" this morning saying "If they overstep
the line in these negotiations," talking about his fellow Democrats, "to
bring three or four Republicans along, there will be a reaction among
Democrats unlike anything you'll hear among Republicans." So how do you
solve that dilemma?

CONRAD: You know, you've got to keep putting one foot in front of
the hour and try to have a plan to propose to our colleagues that can
win their support, Republicans and Democrats. Look, there are not the
votes for Democrats to do this just on our side of the aisle. This is
going to require...

STEPHANOPOULOS: So it's not possible to have a Democrat-only bill.

CONRAD: No, it is not possible and perhaps not desirable either.
We're probably going to get a better product if we go through the tough
business of debate, consideration, analysis of what we're proposing. It
is so important we get this right and that it's sustainable.

If I can just come to back to Jim's point, the $5,000 voucher as he
has proposed, he says there are a lot of plans out there that have
$5,000. Yes, there are, but what are they? They don't cover much of
anything. In fact, they work not to provide you coverage. That's why
they only cost $5,000. And his plan is to provide you $5,000 out years
from now, when the cost of health care will have gone up even further.
So that really is not a serious option for American families.

STEPHANOPOULOS: Senator DeMint, is there a chance that these
bipartisan negotiations can get broader Republican support? There are
three Republicans talking with the Democrats in the Finance Committee.
What if the broader pool of Republicans are open to the kind of
bipartisan compromise they're working on?

DEMINT: Well, Republicans want to protect the right of Americans to
make their own health care decisions, to pick their own doctors and
their own plans. We can do that and I'm afraid the senator is not
representing my ideas correctly, but we could have a plan in a few
weeks, George, if the goal is not a government takeover. We've never
seen the government operate a plan of any kind effectively and at the
budgets we talked about.

This is about the most personal service that Americans have. We
don't want to put a bureaucrat -- as the president talked about the
other night, he was talking about taking a red plan, a red pill or a
blue pill. He was accusing doctors of taking out children's tonsils
just to make a profit. He doesn't have the right respect for doctors
and how the industry works.

STEPHANOPOULOS: You know, Senator Conrad, it seems pretty clear
that one of the red lines that Senator DeMint is identifying here at
minimum is that this idea of a public health insurance option, which
matters so much to many of your Democratic colleagues, is something that
is going to guarantee you limit Republican support to three or four,
maybe zero, Republican senators. So are you telling your Democratic
colleagues that is simply not going to happen?

CONRAD: What I am telling them is there is an alternative that
tries to capture the best of both sides. I have put forward a
cooperative approach, cooperative business model as successful all
across America. You know, Ace Hardware is a cooperative. Land O'Lakes
is a cooperative. We have group health out in Washington that's a
cooperative. It's not government run, it's not government controlled,
it's membership run and membership controlled and that is a model that
would provide additional competition for for-profit insurance
companies. And half the states in the country, there is no affective
competition.

One place where Jim and I probably can agree is more competition is
a good thing. More choices for consumers is a good thing. And that's
what we're trying to provide, not a government run system -- a
membership controlled, membership run that will provide additional
competition.

STEPHANOPOULOS: What's wrong with that?

DEMINT: What the senator is talking about having a Fannie Mae or a
Fannie Med type organization in every state, a government sponsored
organization that decides what insurance you can have and what you can't
have. It makes no sense when all we have to do is take these barriers
away from interstate competition of insurance plans. We can have dozens
and dozens of insurance companies competing for business and my children
and his children. We don't need the government to take this over.

STEPHANOPOULOS: We're going to have to leave it there, but very
quickly, Senator Conrad, are you going to finish your negotiations by
August 7th?

CONRAD: You know, we're going to finish when we're finished and
we're going to do everything we can to get it right. We're moving with
dispatch. We meet hours every day. We've got the best analysts in the
country helping us. We'll be ready when we're ready.

STEPHANOPOULOS: OK senators, thank you both very much. We're going
to go straight to "The Roundtable" and as our team takes their seats,
think about this question. On health care, whose fate will President
Obama emulate?

(BEGIN VIDEO CLIP)

LYNDON B. JOHNSON, FMR. PRESIDENT OF THE UNITED STATES: No, longer
will older Americans be denied the healing miracle of modern medicine.
No longer will illness crush and destroy the savings they have so
carefully put away over a lifetime.

WILLIAM J. CLINTON, FMR. PRESIDENT OF THE UNITED STATES: I still
believe our country has got to move toward providing health security for
every American family. But I know that last year, as the evidence
indicates, we bit off more than we could chew.

(END VIDEO CLIP)

STEPHANOPOULOS: And with that let me bring in the "Roundtable". I
am joined, as always, by George Will, David Brooks, of "The New York
Times", Arianna Huffington of the Huffington Post, also the paperback
edition of -we have vividly titled books today, on the program -"Pigs at
the Trough: How Corporate Greed and Political Corruption Are
Undermining America"; Nobel Laureate Paul Krugman, also of "The New York
Times" and Princeton, and Donna Brazile.

Welcome back.

So, George, you see Lyndon Johnson signing Medicare, President
Clinton giving his mea culpas on health care back in 1995. Which fate
does Obama have in his future right now?

GEORGE WILL, SYNDICATED COLUMNIST: Bill Clinton's fate, it seems to
me. Because of Bill Clinton's experience, which they sometimes ascribe
this White House to the fact that it took so long to get to it. The
White House, the Obama White House, has been saying speed is essential.
And they're right, for the reason that Emerson said, that "when skating
on thin ice, speed is essential".

STEPHANOPOULOS: So the strategic decision they made early on to go
for everything was the right decision?

WILL: Well, they should go for this, but not go for it with cap and
trade and new energy-wise and all of this thing. The country has a
sense, I think, of overload.

The president has 60 senators. He has a 70-vote majority in the
House of Representatives and he blames Republicans. That's not the
problem. His difficulties extend from the Mayo Clinic to the
Congressional Budget Office, which just yesterday said of the
president's latest proposal, a panel, a magic silver bullet to constrain
costs, that it would save maybe $2 billion. But for four years,
beginning in 2016, and that's a rounding error on the GM bailout.

PAUL KRUGMAN, "THE NEW YORK TIMES": I think I should say something
about that CBO thing, which really surprised a lot of people.

STEPHANOPOULOS: Because it was important and interesting timing.

KRUGMAN: Well, and also most of the health care economists I talked
to think that the Medpac reform, that having these judgments, would
actually be quite important, especially going for the long run. So they
were really kind of surprised. And there was a kind of sense that CBO,
faced with the -- no one could put a hard number on this. The CBO sort
of said, well, if we can't put a hard number on it, we're going to say
it's zero. And that seems to be wrong. There is every reason to think
that being more careful about what Medicare is going to pay for can save
a lot of money. And this was a kind of destructive comment by Doug
Elmendorf at CBO.

DAVID BROOKS, "THE NEW YORK TIMES": Actually, if you follow (ph) on
the substance of it, the health care economists do think it is bigger,
but the political reality is the CBO out rules, they are the arbiter.

Now, think I disagree with George. I think something is going to
get passed. A lot of critics of the plan are doing end zones dances. I
think the Democrats are so scared of failure, that they will pass
something. Now, my question is whether they will actually control costs
while they're doing it. You showed LBJ. When Medicare was pass they
projected, what will this program cost in 1990? They came up with a
budget of about $12 billion. It ended up costing nine times that, and
we can't afford that. So the real question is, do they actually tackle
costs. And that is something they have not done in a serious way.

STEPHANOPOULOS: But that is what Senator Conrad and his bipartisan
group are trying to do. And let me bring Arianna in on this because
David said something that is interesting. Democrats, he says, are so
afraid of failure that they'll pass anything. It seems like the White
House is actually banking on that, as well. That they work -- that they
get behind the Senate Finance Committee deal, when there is one,
eventually. And the rest of the Democrats, even if there is no public
health insurance option, even if there is more Medicare cuts than they
like, even if there is a tax on some health care plans, the Democrats
will go along, because they are afraid of failure.

ARIANNA HUFFINGTON, HUFFINGTON POST: And that would be a major
problem. And that has been really a problem with the Obama style of
leadership, which is let's pass something, even if it does not include
the things that he considers most important; the public option, for
example, or negotiating with the drug industry to bring down costs. His
effort and his lobbying to reconcile everybody, and bring everybody
together, sometimes makes it impossible to get what he needs out of the
primary players here.

The drug industry gave up something, but they haven't given up on
the negotiation for real lower prices with Medicare and Medicaid. And
that's a major issue.

STEPHANOPOULOS: But, Donna, is it political necessity? I mean, can
the president hold the Democrats together only if some of those moderate
Democrats, Blue Dog Democrats, have Republicans covered?

DONNA BRAZILE, DEMOCRATIC STRATEGIST: Well, George, I think August
was always the goal, but it wasn't the only goal. The other goal was to
make sure that he would get a bill that was deficit neutral and reduce
the costs. And the Blue Dogs will go along once the Blue Dogs feel that
they have had sufficient cover with some of the concerns that they
have. I think the president should use this opportunity to retool his
message to convince the American people why we really need health care
reform. Right now many people are worried they may lose something in
this reform and therefore, I think, this is an opportunity for the
president to go out there and retool and

STEPHANOPOULOS: So far he trained all of his fire on the status
quo, making that a plan. That's really the goal of the press conference
Wednesday night.

BRAZILE: And, as we all know, that press conference wasn't a game
change, and some things happened later at that press conference that
really just obliterated his message. But this is an opportunity for the
president really come down hard on those wavering Democrats. And I do
believe that he not only is providing that cover now, but is inside
helping them negotiate.

WILL: I think the Democrats are afraid of failure. But they're
much more afraid of their constituents. What they're hearing from their
constituency is increasing anxiety about the unknown. And the
Republican theory in Senate is simply this: If they get no Republican
senators they will loose some Democratic senators. Therefore,
Republican unity will drive this.

KRUGMAN: There is strong possibility, I don't think any of us knows
for sure, that all of that we're seeing, all of the Sturm und Drang, and
all of that is actually just Kabuki; that in the end, the Democrats will
come together. What we're seeing is jostling for the shape of the final
outcome. And that in the end, everybody will come on board, the Blue
Dogs will come onboard, the progressives will come onboard, because of
the fear of failure.

STEPHANOPOULOS: That's what I want to press -- I mean, I don't
necessarily disagree on the politics, but it depends on how much has to
be given away in these bipartisan negotiations? What price these three
or four Republicans are demanding? And that's sort of what I want to
press you on. What would you consider a bottom-line victory?

KRUGMAN: You know, there is this jostling, which comes from, "you
can't say that in advance". In a way, since I have my own goals on
health care, I can't say what my final, you know --what's the least I'll
accept, because that then becomes negotiating point.

But the point is -

STEPHANOPOULOS: That's what the president is doing, basically.

KRUGMAN: Yes, but you know in the end, I think, I think the
Democrats understand that the constituents might be angry over what's in
the bill, but they mostly will vote against people they perceive as
losers. If the Democrats don't pass this thing, they'll be seen as
losers. So, in the end they have to move forward.

STEPHANOPOULOS: Do you agree with that?

HUFFINGTON: But is has been -- it has been a sort of standard
process, for all the lobbies, for all those trying to derail reform, to
pick the one element that is the central element of reform, and right
now I believe it is public option, because it would allow the kind of
competition that will put the private insurance on the defensive and not
allow them to continue the way they have been. And if that is
eliminated, which is very likely, and Tom Daschle, and then Rahm
Emmanuel, in a way telegraph that they may be willing to give that up,
then it is going to called reform, but it's not going to be real reform.

BROOKS: I don't think that's central. Whatever you think of the
public option, it's not going to have a huge cost effect. This is a
debate over costs. The only thing that really is big enough to change
the provision of health care is getting rid of, or seriously capping,
the exemption on health benefits.

STEPHANOPOULOS: And that is now clearly back on the table. Senator
Conrad told us that this morning.

BROOKS: Right. And most health care economists think it is
absolutely essential. And the White House and the chairman on Capitol
Hill have been loathe to talk about it. But that, to me, is the core.

STEPHANOPOULOS: How much trouble is that going to cause for the
president? Now that it does appear that its creeping back into these
negotiations?

BRAZILE: It's a price that nobody wants to see being paid, by the
president, or anyone else, because as you well know this is one of those
non-negotiables from the Democratic side.

(UNKNOWN): Especially labor unions.

BRAZILE: I mean it's progressive -- absolutely. I agree with
Arianna, the public option is what many of the constituents, who voted
for change, and rallied around the president. That's what they want,
they want their public option. When you come to taxing the benefits of
employees, I think that's going to be a very tough call.

STEPHANOPOULOS: Do you agree with the power of that proposal, on
the taxing benefits?

KRUGMAN: No, I don't think it has very much effect on the costs,
actually. I don't think it's -- the idea is that -health care is not
like buying bread. It's not something where marginal rates (ph) will
make a lot difference. Marginal rates (ph) is at the individual level,
to make a lot of difference. It's not a big deal on controlling costs.
It is, however, a possible source of finance. That is, it is reasonably
fair and it's internal.

Let me say something about cost control. There is a theory, which I
subscribe to, that if you get universality, costs control will follow
through the political mechanism. Massachusetts has universal health
care system that has zero cost control. It was a disaster from a cost
control point of view. Now Massachusetts is getting serious about cost
control because once you've established that you no longer have the
safety valve of dealing with rising costs by making more people
uninsured, then you have to deal with the problem. So, this has to happen.

BROOKS: Wouldn't you say that's because they are actually changing
the delivery of health care, what they are trying to now?

KRUGMAN: Right.

BROOKS: And whatever you think of how they're doing it, the current
bills on Capitol Hill do not fundamentally change that.

KRUGMAN: But the original Massachusetts health care reform didn't
do anything about that either, and

(CROSSTALK)

BROOKS: And we're modeling reform after that.

HUFFINGTON: Well, I believe (ph), it's going to be impossible to
have costs control without some emphasis on prevention. And that's
really one of the problem here. Even the tax on soda, which is so
basic, so elementary, given the trends toward obesity and diabetes, it
is basically not going to happen.

STEPHANOPOULOS: And I was going to say, because it is so basic,
because it is so easy to understand, it is not going to happen.

We actually want to take a quick break here, but I heard, George,
you say no bill this year.

You say the president, very quickly, the president signs something
by December?

HUFFINGTON: Very watered down, not good enough.

KRUGMAN: Yes, he signs something.

BROOKS: Yes, he will sign something.

STEPHANOPOULOS: I think so, as well, but it's hard to know what's
going to be in it.

We're going to come back to the debate the president didn't want
this week, race, police and profiling.

And later, "The Sunday Funnies".

(BEGIN VIDEO CLIP)

DAVID LETTERMAN, THE LATE SHOW: If we had wanted a president who
looked good in pants we would have elected Hillary, you know what I mean?

(LAUGHTER, APPLAUSE)

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: What it made me realize was how vulnerable all
black men are. How vulnerable all people of color are.

OBAMA: Any of us would be pretty angry. The Cambridge police acted
stupidly.

And, George, the president said also, in that surprise press
conference Friday afternoon, that he wanted this to be a teachable
moment. So what did we learn?

WILL: That presidents should know that some things are not any of
their business, such as local police disputes in Cambridge, Massachusetts.

Now, George, look, when you are a highly paid, much honored tenured
professor, at the richest university in the world. In a city with a
black mayor, a state with a black governor, in a country with a black
president, it is hard to get coveted status of victim. And Mr. Gates
got the coveted status of victim with the help from the president.
Because when the president said, the police behaved stupidly, he could
not escape the belief that what -there is a name for what the president
was doing, it's called racial profiling. The distinguished black man,
white policeman, the policeman must be in some inferential way, a racist.

BRAZILE: I think the president was very measured in his initial
comments and perhaps the word "stupidly" caused some to believe he was
attacking the character of the police department.

But, George, there remains in this country a history of painful,
shameful history of racial profiling. And it's not that black people
walk around waiting to be called victims, it's because it is the
dreadful fear.

I'll never forget the lessons my parents would teach my brothers,
not us, but the boys, that no matter what happens, if you are stopped by
the police, do whatever you're told. Put your head down and just wait.
Don't say nothing. It is painful. It is shameful.

And I think the president was trying to raise a much larger issue,
but unfortunately, his word choice got in the way.

BROOKS: I guess, I would say, what we saw is that you cannot see
one event through multiple prisms. That event could be seen through the
race prism, which Donna, just described the history of, frankly, picking
on black men in particular. There's also the class prism. There has
been a history of condescension in this country. And you can also see
it through the prism of a cop versus a Harvard law professor, who is
backed up by a Harvard law graduate. And using the word "stupidly"
sounds condescending. So those multiple prisms conflicted.

And I thought by the end of the week, what you just showed in that
little montage, there, it was like a sitcom. By the end of the week, I
think Obama got to the right place. They both overreacted. He didn't
quite say it, but sort of, I overreacted. And now let's talk this out
over a beer. His final statement was pretty good.

STEPHANOPOULOS: It did seem, Arianna, like this was as much about,
as David said, sort of gender, and class, as anything else. You've got
two guys there, who have their backs up, neither one felt they were
getting the respect they deserved and they just went off.

HUFFINGTON: There was a lot of (inaudible) testosterone. The fact
that he has come from a long flight from China, but beyond that, I
think, there are two teachable moments. And I think it is more of an
August Wilson play than a sitcom, because of the richness of the
characters.

But the first teachable moment is the obvious one. The president
did what he does best. Gracefully and with humility....

STEPHANOPOULOS: On Friday?

HUFFINGTON: On Friday, yes. He basically apologized and asked them
to the White House for a beer, perfect.

The bigger teachable moment is the one that Donna alluded to.
Because the fact is that right now, if you are black, or Hispanic, you
have a much greater chance of being arrested, of being subjected to
force, particularly when it comes to the war on drugs. It is really
stunning that only 15 percent of the top drug population -- drug
offending population is African-American. And yet you have 74 percent
of them who wind up in jail.

STEPHANOPOULOS: Arianna, brings up a couple of important points
there.

Paul, Glen Laurie (ph) points out, in "The New York Times" this
morning, on the Op-Ed Page, that since 1980, the number of people in
American prisons has quintupled. It has gone up five times, and three
quarters of those in state and local prisons are blacks and Hispanics.

KRUGMAN: Yes, although, I'm not sure if it has that much to do with
this case.

Let me say two things about this. First, it is the old line. The
definition of a gaff is when a politician accidentally tells the truth.
I mean, what Obama said was perfectly reasonable, but he shouldn't have
said it.

The second thing is, we are kind of losing sight of -

STEPHANOPOULOS: You think he was reasonable.

KRUGMAN: I think it was.

But look, did Gates -- he was unwise. He was rude. He was
yelling. Did he commit a crime? Did he do anything that you could
plausibly say you should slap handcuffs on? Right?

And there's a really peculiar thing here, which is, think about how
conservatives reacted. Over the last few weeks we've been hearing,
endlessly, conservatives talking about how Obama, the Obama
administration is tyranny, it's a police state. You know, where it's
fascism. It's awful. But they think it's perfectly reasonable to slap
handcuffs on a middle-aged man who walks with a cane because he said
something rude to a policeman.

My God, I mean, you know, it's -- yes, Gates behaved stupidly no
question. There were -- tempers were rising, but you know, a policeman
is supposed to say, is this a crime?

WILL: I would like to come back to the question of how did this
become a presidential level subject of conversation? I try -- ask you
to imagine, A, Dwight Eisenhower being asked a question about a local
police episode in Cambridge, Massachusetts, or, B, Dwight Eisenhower
being foolish enough to answer the question. There are some...

(CROSSTALK)

KRUGMAN: In a way, this is a follow-up. We had -- you know, this
is the president that is giving a conference on health care reform. Why
was a question about Skip Gates on there? You know, the president --
when the president was in Moscow, he was asked about Michael Jackson.

This is a part -- this about our profession behaving badly.

WILL: This is -- but the press reflects the country. And the
country is in the grip of a cult of the presidency. The president is
our all-purpose teacher, tutor, moral auditor, philosopher. The
president is everywhere. This president is ubiquitous.

Now somewhere between the remoteness of Charles de Gaulle and the
ubiquity of Barack Obama there is a happy medium.

HUFFINGTON: Oh, but really this is not about Barack Obama. I mean,
this has been happening...

WILL: It's entirely about Barack Obama.

HUFFINGTON: ... going back to Bill Clinton and being asked what
kind of shorts he wears. I mean, this is not a new phenomenon.

WILL: And he answered.

HUFFINGTON: Yes. But my point -- precisely, this is not a new
phenomenon. I think in fact all of the best presidents we've ever had
have been moral leaders. And you know that. I mean, from Abraham
Lincoln to FDR, I mean, the things that they are remembered for are --
is not much what they've said as what they did.

WILL: You're talking about slavery and the dissolution of the
Union, not a minor police matter in Cambridge.

HUFFINGTON: But you oppose the whole idea of the president being a
moral leader, which goes contrary against American history.

WILL: I opposed extravagant investments of faith, hope, and charity
in the president.

(CROSSTALK)

BRAZILE: ... also someone that the president knew personally, Skip
Gates, and could speak a little bit to his character, but also I think
that the president, having, you know, had the experience that many black
men in this country of being stopped, of being somewhat looked at
suspiciously, maybe this was a matter of his heart over his head, but I
still believe that the end of the day the president was right in
answering in the measured way that he did, the semantics.

Besides, the president of the United States of America is someone
that people look up to and they expect that the president can somehow
teach us about how to get...

WILL: About everything?

BRAZILE: No, not everything. And this...

WILL: Is there nothing that is done that a president...

(CROSSTALK)

STEPHANOPOULOS: But is there a constructive conversation to be had
on this going forward? Now that the incident has blot it all out,
whether he should have spoken to this particular incident or not, it did
raise a broader conversation.

How does he build on it, or not at all?

WILL: Not at all.

BROOKS: Well, I guess -- let's not forget the narcissism of the
educated class here. Last night there were probably a thousand guys who
were hassled by police who no one is going to talk about because they
don't happen to go to Harvard, they aren't known by the media class and
the political class. They don't summer with them on the Vineyard.

So this was an overexposure of this one issue, forgetting the other
much larger issue, which, you know, we don't know those people is
essentially the...

HUFFINGTON: But maybe to George's point, it happened. Now that it
happened, can we get something good out of it and actually put the
spotlight on the bigger problem that we had begun to address, that this
is going on all of the time and that many people end up in jail while if
you happen to be white, you would not have ended up in jail for the same
crime.

STEPHANOPOULOS: And you said it first, it wasn't all that relevant,
but do you think there's a conversation to be had there?

KRUGMAN: You know, I'm not -- I share this much with George Will, I
don't necessarily believe in those kinds of conversations, certainly as
led by the president. I think it best if we put this behind us. So
what we really need to do is make this a better society. And you don't
do that by having conversations, you do that through policy.

BRAZILE: I don't -- well, I don't think that the president
necessarily should lead the conversation, but the conversation will be
held if -- maybe it will start in Cambridge. But, George, I...

STEPHANOPOULOS: They actually said today that they are going to
have some community forum in Cambridge about this.

BRAZILE: And there is no reason for us to sweep it under the rug.
For too long in our history, we have just not wanted to have this
conversation. We can have a very constructive, face-to-face
conversation, pull the resentment, the fear, so that people can come to
a point of tolerance and acceptance.

That's all we're -- I think that's what the goal of the conversation
will be.

WILL: I have a news bulletin. The American people have
conversations all of the time without any help from Washington, backward
reels the mind to the 1990s when Bill Clinton had an epiphany. We
should have a national conversation about race.

We converse about race too much.

BRAZILE: And it remains, as Condoleezza Rice said some time ago,
our birth defect, because we won't have a real honest, candid
conversation, George. And that's the problem.

HUFFINGTON: And it doesn't have to be with the president. It can
be among ourselves. I mean, nobody is saying that the president needs
to keep talking about it. But we in the media need to keep talking
about it so that we can actually make it more likely there will be some
policy changes.

(CROSSTALK)

KRUGMAN: ... we actually made progress. We are much less racist
society than we were 25 years ago because of the individual
conversations, because of the conversation right in the media, probably
the president...

(CROSSTALK)

STEPHANOPOULOS: Barack Obama was just elected president.

KRUGMAN: I think so, yes.

(LAUGHTER)

STEPHANOPOULOS: But you bring up another point, George, the
ubiquity of President Obama. And he was everywhere this week. And Mark
Knoller, who has been covering the White House longer than just about
everybody for CBS News, and is a great statistician, he's like the box
score man in the White House press corps, has said that the president is
just shy now of 100 interviews in the first six months or so in office,
more than any other president in the first six months.

One of them this week was with Katie Couric where the president and
Katie Couric ended up getting in a big discussion about you, David
Brooks. Let's take a look.

(BEGIN VIDEO CLIP)

KATIE COURIC, CBS ANCHOR: He says Democrats are losing touch with
America because, quote, "the party is led by insular liberals from big
cities on the coasts"...

STEPHANOPOULOS: I'm not sure that's exactly true. But he certainly
is spending a lot of time with journalists on television giving
interviews over the last couple of weeks. And, David, it has led to
this discussion that George started, about whether the president is
overexposed.

The White House says in response, they have no option in a fractured
media universe. The president has to be out there all of the time. He
is the best salesman for their policies and there is no substitute.

BROOKS: Yes, first, I'm willing to go read him the columns.

(LAUGHTER)

BROOKS: Maybe while he shaves. I'll just read him Paul's column,
not even my own. I actually don't think he's overexposed. He is their
best spokesman. Now there is a problem that there are no other
spokesmen. They can't send out other people.

But I happen to think he is the best thing they've got. If you look
at the polls, what you see is people like Barack Obama...

STEPHANOPOULOS: Personally.

BROOKS: They disagree with the policies. There has been a sharp
slide in support for the policies. Health care, he is now under 50
percent, 66 (ph) percent of independents thinks too much big
government. But they still like Barack Obama.

So if you've got this unique person who is selling your product,
don't give up on him. So I actually -- I see no evidence that he is
overexposed.

STEPHANOPOULOS: So not at the point of diminishing returns yet, do
you agree?

HUFFINGTON: No, absolutely not. I think this is his capital. His
approval rating is his major political capital. The key question is,
how is he going to spend it? I don't think he is really spending it
enough in terms of making it safe to go...

(CROSSTALK)

STEPHANOPOULOS: Don't you think he is spending it on health care?

(CROSSTALK)

HUFFINGTON: No, no, but in general, health care -- not to make it
bold enough, George. Because if it's not going to be bold enough, it's
not going to contain cost enough. And that includes prevention, that
includes other things that he cannot achieve simply by having endless
meetings in the White House with private insurance and hospital
providers and the (INAUDIBLE) industry.

Because basically ultimately he will have to confront them. You
know, just think of it, he has been trained by Saul Alinsky, right? The
great community organizer who wrote about political reform.

In four stages, that's how he saw it. And the final stage was
reconciliation. My problem with the Barack Obama style is that he wants
to move to reconciliation too fast. And you can't pretend that there is
no conflict. And people are going to be upset if there is real health
care reform.

WILL: Ronald Reagan, who understood the theatrical dimension of
politics, understood the first rule of entertainment, which is the leave
the audience wanting more, not less of you. This president has grabbed
the country by the lapels and shaken it and talked to it and lectured it
and there will be a time when the novelty is gone. You can only be a
novelty once in the cabinet and people will use the fundamental
instrument of modern life, the remote button, and push the mute.

HUFFINGTON: But George, he probably would have left you wanting
less a long time ago. So you know, you are not the typical American.

STEPHANOPOULOS: That may be, Arianna, although one of the things we
did see this weekend and maybe because it's the middle of the summer,
but Paul Krugman, the number of people who tuned it for the president's
press conference is down about 15 percent from the last time around, in
part because Fox was playing something else. But we have seen a steady
slide over the six months on things like that.

KRUGMAN: That's going to happen. First of all, there are other
things going on and also, a little bit of the novelty is wearing off.
But you know, he needs to be out there. What he needs to do is be
focused. I'm not sure that his foreign trip was a good idea. That may
have been that he really -- that he really needed to be here pushing
health care. He needs to be doing more, almost rally style events. You
want to think about -- he needs to be selling his policies and right
now, health care is make or break.

STEPHANOPOULOS: You know, the White House says the president is
going to be going back out there, he'll be on the road this weekend, a
little bit more in August as well. But Donna, I wonder if the problem
with the press conference -- I know the White House, they were upset.
The Gates thing got so much attention. On the other hand, perhaps the
press conference was mistimed. It was clearly probably originally
scheduled at a time they thought the president was going to be selling
one bill in the House and one bill in the Senate, but the process just
wasn't there.

BRAZILE: Well, the timing might have been off, George, but we also
know and I guess because I'm also in the cable business, that people
need to fill some of the hours on TV. Remember "The Fly" episode of the
mosquito that was killed and that was three to five days on TV. I had
to go out and find some other stuff to do because I heard that I
couldn't kill my flies and mosquitoes.

I don't think it's a question of overexposure or bad timing because
I think when the president speaks, he's often refreshed, he's calm, he's
thoughtful, but he's not always focused. And I think that causes some
of the problems that we're not seeing with the health care debates. He
needs to be a little bit more politically focused. Not partisan, but to
make sure that the American people...

STEPHANOPOULOS: On what he wants and that's been a big question. I
mean, he clearly knew what he was talking about on Wednesday night, but
he didn't know exactly what he was pushing for.

BROOKS: This is endemic in the structure of the way he's running
policy, which is that he has some vague ideas, which are noble. Then he
hands power up to Capitol Hill, and they've got all the policies so when
he goes to the press conference, there are 8 million ideas floating
around and four or five different committees. He doesn't want to tip
the scales on any of those, so he has to be extremely vague. And
meanwhile, he can't answer the fundamental questions which people are
asking.

One, how do you cut costs while adding an entitlement? How do you
change the health care system without asking for sacrifice? And unless
you can answer those two questions...

KRUGMAN: I think that's totally unfair. I think the health care
plan, the basic outlines are extremely clear. You know exactly -- there
are four components and all the plans. We understand how they're all
going to work. He's been quite clear, certainly his officials have been
quite clear about how you're going to cut costs. He was perhaps not
that good at conveying all of that in the press conference.

I mean, I liked it. I thought it was crystal clear, but that's
because I've been following the subject. But you can't accuse of him
having vague ideas, vague policies. This is the clearest policy
initiative I've ever seen in my life.

STEPHANOPOULOS: But he's clear on explaining the problem. He was
clear on the benefits of some of the things he was calling for, but he
couldn't come down and say, "This is what I must see in the final
bill." The only two red lines he drew on Wednesday night were, it's got
to cost cuts and it can't increase the deficit.

KRUGMAN: There's a negotiating problem which is he can't say this
is my minimum because -- but and maybe he didn't do a good job of
explaining the plan, but the basics of the plan are actually extremely
clear. It's not the case that this is on foreign policy. Maybe he's
not explaining it as well as he should, but the policy is very well-formed.

WILL: Well Paul, by saying it's well-formed, but we're in a
negotiating process, so a strategic reticence is required. And David,
by saying these are terrible problems and he doesn't have answers,
sounds to me like two good arguments for silence on his part. Get out
of the way. The big question in the country right now really is should
Brett Favre sign with the Minnesota Vikings as quarterback? And I will
wager that before the week is out, the president will have weighed in.

STEPHANOPOULOS: Actually, the really big question from the country
and it affects all of this right now is, is this recession over or not?
And the "Newsweek" cover -- "Newsweek" weighed in today. They had the
cover saying the recession is over. They said be careful about what's
coming next. So Paul, you're the Nobel Prize laureate in economics. In
the recession over?

KRUGMAN: Probably, in a very limited sense. The numbers right now
look a lot like November 2001, which is the date that retrospectively
was considered to be the end of the 2001 recession. It looks like we're
probably going to be positive economic growth in this current quarter.
We're probably going to be seeing some rise in industrial production, so
the business cycle committee. America, the official definition of a
recession is it's a recession if the business cycle meeting committee is
at a recession. They will probably retrospectively say that the
recession ended in July.

STEPHANOPOULOS: And that we're kind of growing now a little bit.

KRUGMAN: But the thing about November 2001 is although the
recession officially ended then, unemployment kept rising for another
year and a half. And that's what we're looking towards, most likely.
We're looking towards a period when the economy is growing, there's more
GDP, you wouldn't call it a recession exactly, but it's going to feel
like a recession because in fact the job market is getting worse.

STEPHANOPOULOS: And what's likely, George, is unemployment will
continue to go up and the deficit will continue to go up, and we're
going to see the numbers on that as Congress comes back to deal with
health care.

WILL: That's right and it's interesting. I don't know why they did
it, perhaps Paul knows. They have delayed releasing the usual July
report on the budget outlook.

KRUGMAN: That's normal for the first year.

WILL: If the recession is over, let us know. And particularly if
it ended in July, it ended before 8 percent of the stimulus, more than 8
percent of the stimulus had been spent. So let's cancel the other 92
percent.

HUFFINGTON: This is a surrealistic debate. How can we say the
recession is over when unemployment is expected to go over 10 percent,
foreclosures keep growing at the rate of -- beyond what anybody expected.

STEPHANOPOULOS: I want you all to answer that in the green room,
continues the debate there. We're going to be back with "The Sunday
Funnies." But as we take a break, take a look at this week's happiest
video. To St. Paul, Minnesota, the rollicking wedding of Jill and Kevin
Heinz. It's gotten more than 6 million hits on YouTube and it's
guaranteed to make you smile.